Asia resilient to US negative credit watch – Fitch

By: Jonathan Boyd | 18 Oct 2013

Fitch Ratings says that its decision to put the US on a negative credit watch following the recent crisis around extending the debt ceiling should not lead directly to any downgrades of Asian sovereign bonds.

The key to this view is liquidity: Fitch says that while the credit rating of the US is being adversely affected, its Treasuries still remain among the most liquid of all assets, and so will continue to underpin Asian external liquidity and sovereign credit profiles.

Many Asian countries have grown their foreign currrency reserves substantially since the region’s financial crisis in 1997-8, Fitch said. The pace of this accumulation has slowed, as governments face deficits.

But the reserves still act as buffers against financial shocks, and therefore are important support for creditworthiness, Fitch adds.

At the end of July 2013, Fitch estimated that Asian governments owned 26% of all marketable US Treasury debt. China and Japan held 11% and 10% respectively. Both countries have among the world’s biggest foreign currency reserves, along with Korea, Taiwan, Hong Kong, Singapore and India. IMF data suggest that 62% of global reserves are held in US dollars.